Welcome to Module 8, Session 2 of the Cardiovascular Program Coordinator Course. This module is Financial Management with content provided by Beverly Fiwadi-Lipsy, Ginger Beesbrock, and Carrie Morris. In this session, we will cover the second agenda item, Hospital Response to Change. We will start with looking at Utilization versus Internal Costs. It's very important we understand exactly what those terms mean. Utilization is the cost to the payers. Patients utilize the hospital services and then those services are billed to the payer. Think Medicare, Humana, Blue Cross Blue Shield, etc. These services may be inpatient stays, such as for a DRG, or a professional service such as a provider billing for evaluation and management, or pharmacy medications, or codes for diagnostic services like x-rays, radiology, and geograms. But these are all examples of utilization. Internal Costs. These are the costs of care that the hospital has to undergo to render services. When we talk about operating margins, this is the revenue minus expenses. So revenue being the income generated and expenses are the cost of keeping the doors open. Think utilities, maintenance, equipment, payroll costs, etc. Fixed costs are costs that do not fluctuate from month to month. Think infrastructure, your IT system package, capital equipment, etc. While variable costs do change, these would be things like supplies per patient, resource utilization, the number of patients you treated in a month, staffing changes. Now when your organization is looking at projects, it is important to evaluate the impact on utilization of services by your patients. This makes a difference in choosing which project to take on. Organizations are going to look to projects that save the payer significant dollars and in some cases bring those dollars back to the organization to a shared savings or other type of alternative payment model. Your internal costs are what is going to drive that margin. The better the margin, the more you will have to grow your program. So now let's drill down into cost avoidance and how your accreditation or certification can help you achieve this. Control of the accreditation and certifications will guide your organization in reducing readmissions. Most of the time, we would think having a patient in a bed translates to the hospital making money, generating revenue, but that's not always the case. We will explore this concept a little more in the upcoming slides. Reducing the length of stay for patients. If you are familiar with payment, when a patient is admitted under a certain diagnosis, the services rendered and a DRG is attached. It is related to the acuity level of the patient and diagnosis and some of the services rendered to care for that patient. Payment is not related to how long the patient is in the hospital. For example, you have two patients admitted with the same diagnosis or DRG. One patient is there for three days while the other is there for five days. The payment is the same for both patients. For the extra days it took to care for the second patient, that cost of care was absorbed by the hospital. So when you were looking at length of stay, you can significantly decrease the internal cost with improved processes that support efficiencies. Improved staffing model. Cost of full-time employees with annual compensation plus benefits. This includes their salary along with their insurance, PTO, sick time, etc. Your finance team will know what the calculation is for staffing. Most places are between 25 to 30% of the operating expenses. Finally, in looking at cost avoidance, we focus on decreasing complications in patient care. To better understand the cost of complications, let's look at an example. When a patient has a complication, this may require a higher level of care, extended length of stay, additional labs drawn, maybe a blood transfusion, or possibly they have to go back and have another procedure done or an angiogram or some type of seal, whatever that care requires. You can go back and do an analysis on that care to understand if you can decrease the complication rate by X amount percentage or you can save X amount of dollars. Now let's look at this in a real scenario. Here is a heart failure program looking at a cost avoidance strategy. There are three hospitals, all part of a system. We evaluated their fee-for-service Medicare patients and their readmission rates. You can see the number of readmissions for each hospital is 44, 101, and 43 for a total of 188 patients. If they put the right program in place, say a heart failure clinic or transitional care clinic, they could reduce those readmissions by 40%. This would be 75 patient readmissions. If you've done any work in this area, literature would suggest if you go from a variable program to a good comprehensive ambulatory strategy, it is not unheard of to drop that readmission by 40%. That is 75 hospitalizations across the organization. When we talk to this organization, they describe a negative $2,100 operating margin to manage these patients. It costs them over $2,000 every time a patient was admitted for heart failure. If we save those 75 hospitalizations, this can potentially save them $157,500 over a 12-month period. When you start to look at resources and staffing to put a heart failure clinic together, these are dollars saved that can be reallocated to other resources to better manage these patients. This ends up being a win-win for everyone. The next topic you need to understand is utilization avoidance. Again, we look at the services rendered and our ability to avoid unnecessary services. This is cost back to the payer. What are our options? Well, let's go back to our previous example of heart failure readmissions. Even though the example showed a negative margin, this still costs the payer and the system money. So if we can reduce the readmissions, we're saving significant dollars. Appropriate place of service. What does it cost and what are we able to charge a payer in an emergency room visit versus an observation stay versus an inpatient admission? The better we perform and keep those patients in the lowest cost of care in the lowest setting of care, we are saving significant dollars to the payer. Reducing duplication of services, making sure we're not providing multiple imaging studies and labs that are not necessary. And then finally, decreasing complications. If you think about it, you have different reimbursements. So let's say if you have patients coming back for pseudoaneurysm, what does that look like? What's the cost if we can decrease our rate of pseudoaneurysm? In doing so, we've now saved the payer significant dollars. Now back to our heart failure example. What is the utilization avoidance strategy look like for this one? We have a couple of opportunities here. The number received from the finance team on the Medicare cost report data was $5,300. So that is how much in this scenario where this particular system was part of the bundled payment care initiative. And so they were on the hook for the services rendered and at a 90-day period after the patient was admitted for the initial heart failure hospitalization. Any cost savings back to Medicare by reducing readmissions can now be shared back with the health care organization. So in this case, if we reduce readmissions, we recognize a $400,000 cost savings to Medicare with a portion of that back to the organization. In addition, we had 258 bed days saved. And now these beds are available to fill with other patients. Just like with most hospitals, there's a bed crunch. The better we can perform at keeping the wrong patients out of the beds and save for the right patients, the better your hospital will perform and increase their operating margin. Next, we're going to discuss pro forma. When looking at taking on a project, we look at the costs associated with the project. First, you need to understand the staffing, so salary benefits, which we already talked about. Also looking at your supplies and the facility costs related to things like leasing space and then other costs that contribute to the overhead. So how much will your project make? Pro forma includes your potential profit and your potential losses or your potential revenue and potential expenses. When developing a pro forma, you will focus on several areas. Evaluation and management, professional services, which are those services provided by your physicians and the provider teams or other services. CPT services are those by procedures and ancillary services, which are labs, imaging, tests, and then supply pass-through are things like medications and devices. Other opportunities are from things like research dollars or rebates coming in. When you begin to look at a particular program, these are the different things you want to look at where revenue can be generated. Now circling back around to the heart failure costs. Here we have a set of staffing models put together for heart failure patients. You can see there's the physician, an advanced practice nurse, a nurse, a navigator, dietician, pharmacist, and a social worker and where those costs end up. And then we add in some other supply costs like scales, pillboxes, printing costs, and we'll see what those costs are. And then looking at the year one through five, you can see by year five, cost will be around $366,000. So this would be your expenses side. Now on your revenue side, we have year one through five. We look at the heart failure clinical P&L or profits and losses. We take the number of patients, service, and the reimbursements we'll get along with the revenue generated, then subtract variable cost. Now in this scenario, we do not take out the fixed costs. Here you're going to want to work with your finance team to identify what that fixed cost calculation is for you to include that. But as you see here, we have a contribution margin, which is the difference between our revenue and expenses of anywhere between $77,000 to $100,000. Now heart failure in our experience doesn't bring in a ton of revenue, but setting your program upright and resourcing it appropriately can help you break even or even generate a few new dollars that you can add back into some additional resources. Now pivoting to chest pain management, let's look at cost avoidance to the payer. This is a big deal. Here's what we know. Commercial payer claims data shows that observation care is less costly. A retrospective study of claims from Blue Cross Blue Shield shows a less costly opportunity. ED patients with nonspecific chest pain is very common, and the majority do not have cardiac chest pain, thus do not need to be managed as an inpatient. Now when we performed this analysis of the claims data, which is a little older, but the principle is still the same, the average cost for inpatient care is anywhere from $5,900 to just under $19,000. If we put them over into an observation setting, we drop the cost associated with the care to the payer. We know this is a significant amount of savings that can add up over time. Now we know if we can keep the chest pain patients in an observation unit, the costs are lower. Think about even those low-risk chest pain patients that come in through your emergency department. Often we can just discharge them directly from the emergency room and send them for outpatient follow-up. This practice saves significant dollars and bed space while still maintaining that patient satisfaction. This concludes Module 8, Session 2 of the Cardiovascular Program Coordinator course.

Financial Management

Utilization versus Internal Costs

Hospital Response to Change

Cost Avoidance

Pro Forma